1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission file number 0-17942
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 94-3046886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 Market Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
2
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2000
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - June 30, 2000 and December 31, 1999 (unaudited) 4
Condensed Statements of Operations for the three and six months ended June 30, 2000 and 1999 (unaudited) 5
Condensed Statements of Cash Flows for the six months ended June 30, 2000 and 1999 (unaudited) 6
Notes to Condensed Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
2
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's condensed balance sheets as of
June 30, 2000 and December 31, 1999, condensed statements of
operations for the three and six months ended June 30, 2000 and
1999, and condensed statements of cash flows for the six months
ended June 30, 2000 and 1999.
3
4
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2000 1999
------------- -------------
Assets
Current assets:
Cash and cash equivalents, includes $440,010 at June 30, 2000 and
$416,588 at December 31, 1999 in interest-bearing accounts $ 481,502 $ 416,688
Net lease receivables due from Leasing Company
(notes 1 and 2) 124,227 138,387
------------- -------------
Total current assets 605,729 555,075
------------- -------------
Container rental equipment, at cost 7,098,943 7,997,621
Less accumulated depreciation 4,457,638 4,881,001
------------- -------------
Net container rental equipment 2,641,305 3,116,620
------------- -------------
Total assets $ 3,247,034 $ 3,671,695
============= =============
Partners' Capital
Partners' capital (deficit):
General partner $ (99,146) $ (140,445)
Limited partners 3,346,180 3,812,140
------------- -------------
Total partners' capital $ 3,247,034 $ 3,671,695
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
4
5
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Net lease revenue (notes 1 and 4) $ 125,499 $ 113,387 $ 269,120 $ 319,850
Other operating expenses:
Depreciation 72,653 136,396 170,155 275,320
Other general and administrative expenses 17,431 6,550 28,153 18,587
--------- --------- --------- ---------
90,084 142,946 198,308 293,907
--------- --------- --------- ---------
Income (loss) from operations 35,415 (29,559) 70,812 25,943
Other income:
Interest income 5,287 7,837 10,124 14,009
Net gain on disposal of equipment 1,324 32,677 46,005 77,342
--------- --------- --------- ---------
6,611 40,514 56,129 91,351
--------- --------- --------- ---------
Net income $ 42,026 $ 10,955 $ 126,941 $ 117,294
========= ========= ========= =========
Allocation of net income (loss):
General partners $ 30,763 $ 37,676 $ 102,587 $ (67,090)
Limited partners 11,263 (26,721) 24,354 184,384
--------- --------- --------- ---------
$ 42,026 $ 10,955 $ 126,941 $ 117,294
========= ========= ========= =========
Limited partners' per unit share of net income (loss) $ 0.52 $ (1.24) $ 1.13 $ 8.58
========= ========= ========= =========
The accompanying notes are an integral part of these condensed financial
statements.
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6
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
-------------------------
June 30, June 30,
2000 1999
--------- ---------
Net cash provided by operating activities $ 326,945 $ 406,528
Cash provided by investing activities:
Proceeds from sale of rental equipment 289,472 338,677
Cash from (used in) financing activities:
Repayment of over-distribution to general partner (note 3) -- 142,660
Distribution to partners (551,603) (747,504)
--------- ---------
Net cash used in financing activities (551,603) (604,844)
--------- ---------
Net increase in cash and cash equivalents 64,814 140,361
Cash and cash equivalents at January 1 416,688 543,782
--------- ---------
Cash and cash equivalents at June 30 $ 481,502 $ 684,143
========= =========
The accompanying notes are an integral part of these condensed financial
statements.
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7
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund VIII, A California Limited Partnership (the
"Partnership") was organized under the laws of the State of
California on August 31, 1987 for the purpose of owning and leasing
marine cargo containers worldwide to ocean carriers. To this extent,
the Partnership's operations are subject to the fluctuations of
world economic and political conditions. Such factors may affect the
pattern and levels of world trade. The Partnership believes that the
profitability of, and risks associated with, leases to foreign
customers is generally the same as those of leases to domestic
customers. The Partnership's leases generally require all payments
to be made in United States currency.
Cronos Capital Corp. ("CCC") is the general partner and, with its
affiliate Cronos Containers Limited (the "Leasing Company"), manages
the business of the Partnership. CCC and the Leasing Company also
manage the container leasing business for other partnerships
affiliated with the general partner. The Partnership shall continue
until December 31, 2008, unless sooner terminated upon the
occurrence of certain events.
The Partnership commenced operations on January 6, 1988, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 40,000 units of limited partnership interest at
$500 per unit, or $20,000,000. The offering terminated on August 31,
1988, at which time 21,493 limited partnership units had been
purchased.
(b) Leasing Company and Leasing Agent Agreement
Pursuant to the Limited Partnership Agreement of the Partnership,
all authority to administer the business of the Partnership is
vested in CCC. CCC has entered into a Leasing Agent Agreement
whereby the Leasing Company has the responsibility to manage the
leasing operations of all equipment owned by the Partnership.
Pursuant to the Agreement, the Leasing Company is responsible for
leasing, managing and re-leasing the Partnership's containers to
ocean carriers, and has full discretion over which ocean carriers
and suppliers of goods and services it may deal with. The Leasing
Agent Agreement permits the Leasing Company to use the containers
owned by the Partnership, together with other containers owned or
managed by the Leasing Company and its affiliates, as part of a
single fleet operated without regard to ownership. Since the Leasing
Agent Agreement meets the definition of an operating lease in
Statement of Financial Accounting Standards (SFAS) No. 13, it is
accounted for as a lease under which the Partnership is lessor and
the Leasing Company is lessee.
The Leasing Agent Agreement generally provides that the Leasing
Company will make payments to the Partnership based upon rentals
collected from ocean carriers after deducting direct operating
expenses and management fees to CCC. The Leasing Company leases
containers to ocean carriers, generally under operating leases which
are either master leases or term leases (mostly one to five years).
Master leases do not specify the exact number of containers to be
leased or the term that each container will remain on hire but allow
the ocean carrier to pick up and drop off containers at various
locations; rentals are based upon the number of containers used and
the applicable per-diem rate. Accordingly, rentals under master
leases are all variable and contingent upon the number of containers
used. Most containers are leased to ocean carriers under master
leases; leasing agreements with fixed payment terms are not material
to the financial statements. Since there are no material minimum
lease rentals, no disclosure of minimum lease rentals is provided in
these condensed financial statements.
7 (Continued)
8
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net lease
revenue is recorded by the Partnership in each period based upon its
leasing agent agreement with the Leasing Company. Net lease revenue
is generally dependent upon operating lease rentals from operating
lease agreements between the Leasing Company and its various
lessees, less direct operating expenses and management fees due in
respect of the containers specified in each operating lease
agreement.
(d) Financial Statement Presentation
These condensed financial statements have been prepared without
audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting procedures have been omitted. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and accompanying notes in
the Partnership's latest annual report on Form 10-K.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States (GAAP)
requires the Partnership to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those
estimates.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion
of management, necessary to a fair statement of the financial
condition and results of operations for the interim periods
presented. The results of operations for such interim periods are
not necessarily indicative of the results to be expected for the
full year.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base management
fees payable, reimbursed administrative expenses, and incentive fees
payable to CCC and its affiliates from the rental billings payable by the
Leasing Company to the Partnership under operating leases to ocean
carriers for the containers owned by the Partnership. Net lease
receivables at June 30, 2000 and December 31, 1999 were as follows:
June 30, December 31,
2000 1999
------------- -------------
Gross lease receivables $ 414,964 $ 426,678
Less:
Direct operating payables and accrued expenses 51,362 96,695
Damage protection reserve 38,014 48,136
Base management fees payable 53,643 58,419
Reimbursed administrative expenses 14,533 5,021
Allowance for doubtful accounts 100,441 50,635
Incentive fees 32,744 29,385
------------- -------------
Net lease receivables $ 124,227 $ 138,387
============= =============
8 (Continued)
9
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(3) Due From General Partner
During 1998, CCC received over-distributions of $142,660. CCC repaid the
over-distribution amount in March 1999.
(4) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management and incentive fees and reimbursed administrative expenses
to CCC from the rental revenue billed by the Leasing Company under
operating leases to ocean carriers for the containers owned by the
Partnership. Net lease revenue for the three and six-month periods ended
June 30, 2000 and 1999 was as follows:
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Rental revenue (note 5) $278,064 $305,690 $575,802 $706,653
Less:
Rental equipment operating expenses 84,932 104,915 167,616 207,649
Base management fees 16,848 26,909 35,905 56,861
Reimbursed administrative expenses 18,041 21,019 38,513 43,373
Incentive fees 32,744 39,460 64,648 78,920
-------- -------- -------- --------
$125,499 $113,387 $269,120 $319,850
======== ======== ======== ========
(5) Operating Segment
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which changes the way public business enterprises report financial and
descriptive information about reportable operating segments. An operating
segment is a component of an enterprise that engages in business
activities from which it may earn revenues and incur expenses, whose
operating results are regularly reviewed by the enterprise's chief
operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance, and about which
separate financial information is available. Management operates the
Partnership's container fleet as a homogenous unit and has determined,
after considering the requirements of SFAS No. 131, that as such it has a
single reportable operating segment.
The Partnership derives its revenues from dry cargo marine containers. As
of June 30, 2000, the Partnership operated 1,373 twenty-foot, 1,135
forty-foot and 75 forty-foot high-cube dry cargo marine containers.
Due to the Partnership's lack of information regarding the physical
location of its fleet of containers when on lease in the global shipping
trade, it is impracticable to provide the geographic area information
required by SFAS No. 131.
******
9 (Continued)
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between June 30, 2000 and
December 31, 1999.
During the first six months of 2000, the Registrant disposed of 348
containers as part of its ongoing operations. At June 30, 2000, 54% of
the original equipment remained in the Registrant's fleet, as compared to
61% at December 31, 1999, and was comprised of the following:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 125 178 16
Master leases 976 768 36
------- ------- -------
Subtotal 1,101 946 52
Containers off lease 272 189 23
------- ------- -------
Total container fleet 1,373 1,135 75
======= ======= =======
40-Foot
20-Foot 40-Foot High-Cube
---------------- ---------------- ----------------
Units % Units % Units %
----- ----- ----- ----- ----- -----
Total purchases 2,244 100% 2,396 100% 150 100%
Less disposals 871 39% 1,261 53% 75 50%
----- ----- ----- ----- ----- -----
Remaining fleet at June 30, 2000 1,373 61% 1,135 47% 75 50%
===== ===== ===== ===== ===== =====
The Registrant's allowance for doubtful accounts increased from $50,635
at December 31, 1999 to $100,441 at June 30, 2000. This increase was
attributable to the delinquent account receivable balances of
approximately 11 lessees. The Leasing Company has either negotiated
specific payment terms with these lessees or is pursuing other
alternatives to collect the outstanding balances. In each instance, the
Registrant believes it has provided sufficient reserves for all doubtful
accounts.
During the second quarter of 2000, distributions issued from operations
and sales proceeds amounted to $287,136, reflecting distributions due to
the general and limited partners for the first quarter of 2000. This
represents an increase from the $264,467 issued during the first quarter
of 2000, reflecting distributions due for the fourth quarter of 1999.
The growth in the volume of world trade, a rise in exports to the Far
East, and the global effects of a strong U.S. economy have resulted in
improved market conditions for the container leasing industry. As a
result of these and other factors, including repositioning initiatives
implemented earlier in the year, utilization of the Registrant's fleet of
containers has exhibited steady improvement in recent months. In
addition, new container prices, as well as interest rates, have been
rising from historically low levels. During such times, ocean carriers
tend to reduce their capital spending to supplement their owned fleets of
containers in favor of leasing. The pressure on per diem rates has
impacted the Registrant's revenues, but there has been some rate
stabilization in recent months. The Registrant will continue to take
advantage of improving market conditions by repositioning equipment to
locations of greatest demand as well as seeking out leasing opportunities
that will strengthen utilization and enhance the performance of the
fleet.
10 (Continued)
11
2) Material changes in the results of operations between the three and
six-month periods ended June 30, 2000 and the three and six-month
periods ended June 30, 1999.
Net lease revenue for the three and six-month periods ended June 30, 2000
was $125,499 and $269,120, respectively, an increase of 11% and a
decrease of 16% from the respective three and six-month periods in the
prior year. For the three and six-month periods ended June 30, 2000,
approximately 3% and 36%, respectively, of the Registrant's net income
was from gain on disposal of equipment, as compared to 298% and 66%,
respectively, for the same three and six-month periods in the prior year.
As the Registrant's disposals increase in subsequent periods, net gain on
disposal should contribute significantly to the Registrant's net earnings
and may fluctuate depending on the level of container disposals.
Gross rental revenue (a component of net lease revenue) for the three and
six-month periods ended June 30, 2000 was $278,064 and $575,802,
respectively, reflecting declines of 9% and 19% from the same respective
three and six-month periods in 1999. Gross rental revenue was impacted by
the Registrant's slightly smaller fleet size and lower per-diem rental
rates. Average per-diem rental rates decreased approximately 12% and 14%,
respectively, when compared to the same three and six-month periods in
the prior year. The Registrant's average fleet size and utilization rates
for the three and six-month periods ended June 30, 2000 and June 30, 1999
were as follows:
Three Months Ended Six Months Ended
-------- -------- -------- --------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Average fleet size (measured in twenty-foot
equivalent units (TEU)) 3,859 5,059 4,052 5,175
Average utilization 82% 72% 80% 72%
The age and declining size of the Registrant's fleet contributed to
reductions in depreciation expense of 47% and 38%, respectively, for the
three and six-month periods ended June 30, 2000 when compared to the same
three and six-month periods in the prior year. Rental equipment operating
expenses as a percent of the Registrant's gross lease revenue, were 31%
and 29%, respectively, during the three and six-month periods ended June
30, 2000, as compared to 34% and 29%, respectively, during the three and
six-month periods ended June 30, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 20, 2000, KM Investments, LLC, a California limited liability company
("KM") filed its complaint (the "Complaint") in the Superior Court for the
County of Los Angeles against CCC, as general partner of the Partnership,
alleging violation of the California Revised Limited Partnership Act, breach of
fiduciary duty, and unfair competition. KM claims to be an assignee of units of
limited partnership interests in the Partnership and six other California
limited partnerships (collectively, the "Cronos Partnerships") managed by CCC as
general partner. KM, which is in the business of making unregistered tender
offers for up to 4.9% of the outstanding interests in limited partnerships,
claims that CCC has wrongfully refused to provide KM with lists of the limited
partners of the Cronos Partnerships to enable KM to make unregistered tender
offers to the limited partners of the Cronos Partnerships.
KM asks for declaratory relief, damages according to proof, attorneys' fees,
costs, interest, a temporary restraining order and/or a preliminary injunction
barring CCC from giving limited partner lists to any other party before
delivering such lists to KM, punitive damages, and an order prohibiting CCC from
receiving reimbursement of its legal fees incurred in defending the action from
the Cronos Partnerships.
On April 24, 2000, CCC filed its demurrer to the Complaint and its motion to
strike those portions of the Complaint seeking punitive damages. By its
demurrer, CCC asserted that KM, as an assignee of units of the Cronos
Partnerships, is not entitled to review or receive a copy of the lists of the
limited partners of the Cronos Partnerships; that CCC has not breached any
fiduciary duty to KM; and that CCC has not engaged in unfair competition as
alleged by KM. CCC requested that the Court dismiss KM's Complaint.
On June 8, 2000, the Court heard CCC's demurrer, and sustained (i.e., granted)
it in its entirety, allowing KM thirty days to file an amended complaint. KM did
so on or about July 10, 2000, asserting the same causes of action as set forth
in its original complaint. CCC intends to demur to KM's amended complaint and to
move to strike those portions of the complaint seeking punitive damages. CCC
believes that KM's complaint is without merit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description Method of Filing
------- -------------------------------------------------------------------- ----------------------
3(a) Limited Partnership Agreement of the Registrant, amended and restated *
as of October 13, 1987
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended June 30, 2000.
- ------------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 13, 1987, included as part of Registration
Statement on Form S-1 (No. 33-16984)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-16984)
12
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA INCOME FUND VIII,
A California Limited Partnership
By Cronos Capital Corp.
The General Partner
By /s/ Dennis J. Tietz
------------------------------------------
Dennis J. Tietz
President and Director of Cronos Capital
Corp. ("CCC")
Principal Executive Officer of CCC
Date: August 14, 2000
13
14
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
------- -------------------------------------------------------------------- ----------------------
3(a) Limited Partnership Agreement of the Registrant, amended and restated *
as of October 13, 1987
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
- ------------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 13, 1987, included as part of Registration
Statement on Form S-1 (No. 33-16984)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-16984)